Sea Limited ( NYSE: SE ) shares slipped fractionally in premarket trading on Monday as investment firm Bank of America downgraded the Singapore-based tech firm on worries over a near-term disappointment in both its e-commerce and gaming businesses.
Analyst Sachin Salgaonkar lowered the firm's rating on Sea Limited ( SE ) to neutral from buy, noting that the e-commerce business could slow down to a negative 1% year-over-year growth and 6% sequential decline, based off Shopee's gross merchandise volume.
"We think Sea will struggle to balance revenue growth with profitability and expect near-term path to profitability to come at the expense of revenue growth," Salgaonkar wrote in a note to clients.
Salgaonkar added that a lack of new games is still an overhang for Sea Limited ( SE ), as the company's cash cow game, Free Fire , is still seeing slowing growth, citing data from Sensor Tower. There's also a risk on depending on just one game, given the nature of the industry.
There are also worries over rising competition from ByteDance's ( BDNCE ) TikTok, as TikTok has recently focused on e-commerce.
"As both TikTok & Shopee cater to similar audiences (focused on fashion, accessories), we find Shopee more vulnerable," Salgaonkar explained.
Salgaonkar lowered the firm's earnings per share estimates and now expects a loss of $1.44 per share in fiscal 2023 and positive earnings of 70 cents per share in fiscal 2024.
Sea ( SE ) was among the worst declining communications stocks in 2022, sliding 77% .
Analysts are largely bullish on Sea Limited ( SE ). It has a BUY rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates SE a HOLD .
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Sea Limited slips as BofA downgrades on risks of 'near-term disappointment'